Herbl, one of the largest cannabis distributors in California, has been facing a severe financial crisis that led to its receivership and the sale of some of its assets. The company, which owed millions of dollars to its creditors, brands, and tax authorities, has been struggling to survive in the competitive and regulated cannabis market.
What is Receivership and How Did Herbl End Up There?
Receivership is a legal process in which a court-appointed receiver takes control of a company’s assets and operations to pay off its debts and protect its stakeholders. A company may enter receivership voluntarily or involuntarily, depending on the circumstances and the agreements with its lenders.
Herbl entered receivership in June 2023, after its main lender, East West Bank, canceled a line of credit that it had provided to the company. The bank claimed that Herbl had breached the terms of the loan agreement and failed to repay its debts. Herbl also faced lawsuits from several cannabis brands that accused it of not paying them for their products.
According to the receiver’s report, Herbl had a negative net worth of $-32.7 million as of June 30, 2023, and owed $51.4 million to its secured creditors, $28.9 million to its unsecured creditors, and 9.6 million in taxes. The company also had a cash flow deficit of-3.5 million per month and was unable to generate enough revenue to cover its expenses.
What Assets Did the Receiver Sell and For How Much?
The receiver, Robert Mosier, was authorized by the court to sell some of Herbl’s assets to raise funds and pay off its debts. The assets included:
- A warehouse in Santa Barbara, California, that was sold for $8.5 million to a cannabis real estate investment trust called Innovative Industrial Properties. The warehouse was used by Herbl as its headquarters and distribution center.
- A fleet of 80 vehicles that was sold for $1.6 million to a company called Fleet Solutions. The vehicles were used by Herbl to transport cannabis products across the state.
- A software platform called Blackbird that was sold for $2.5 million to a company called TILT Holdings. Blackbird was acquired by Herbl in June 2022 and provided technology solutions for cannabis retailers and distributors.
The receiver also negotiated with some of Herbl’s creditors to reduce the amount of debt that the company owed. For example, the receiver reached a settlement with East West Bank to pay $25 million instead of $51.4 million, and with the California Department of Tax and Fee Administration to pay $4.8 million instead of $9.6 million.
What is the Future of Herbl and the Cannabis Distribution Sector?
The receiver stated that he was trying to preserve Herbl’s business as a going concern and find a buyer or an investor who could take over the company and continue its operations. However, he also acknowledged that the cannabis distribution sector was facing many challenges and uncertainties, such as:
- The oversupply of cannabis products and the low wholesale prices that reduced the margins and profitability of distributors.
- The high taxes and fees that increased the operating costs and liabilities of distributors.
- The competition from other distributors and from brands that opted to self-distribute their products.
- The regulatory compliance and enforcement that required distributors to follow strict rules and standards.
The receiver said that he hoped to find a solution for Herbl by the end of 2023, but he could not guarantee that the company would survive or that its creditors and brands would be fully paid.
